Adriana Mladenova, Economist Institute for Market, Economics

After three years of delay, bureaucratic obstacles and impediments of all sorts (even a presidential veto of the draft bill), the commercial register in Bulgaria was successfully launched in January.

Until last year, registering a company in Bulgaria was done in court. Business people faced substantial loss of money, time and effort in filling out and submitting required documents to various government bodies – among them, the court, National Statistical Institute, National Revenue Agency and the National Social Security Institute. Now the process of registering a company is an administrative service transferred to the Registry Agency under the supervision of the Ministry of Justice. Once a company is registered, the agency has the obligation to submit all necessary information to all public bodies, which cannot demand verification of any data entered in the register. The registration process is much easier and can be done online after completing and sending some documents and forms. Also, rather than announcing the registration of a company in the State Gazette, online confirmation and submission to Registry Agency website is now sufficient.

As of April, a new electronic payment system has started which allows registration fees to be paid online, rather than at a bank, leading to reduced fees and costs for registering a business.

Detailed guidelines on how to register all types of legal entities (limited liability, sole entrepreneurship, stock company, etc) can be found on the internet site of the agency.

The problems
According to the new Law on Commercial Registry that went into force on January 1, all new and existing businesses in the country must be registered in the new system by the end of 2010, otherwise they will be deleted from the official database of companies in Bulgaria. This way, inactive and phantom companies would be left without registration and a number of problems would be solved. The average number of new registration and re-registration (re-registering is free) of existing companies in the system is about 650 to 680 a day and at this rate will accelerate in the future.

Another problem arose from the law provisions. All existing companies must submit their tax statements for previous years to the new online register by the end of June 2008. This presupposes that the companies must be first registered there, which is a clear contradiction to the term of three years stipulated in the law. This issue could be easily resolved if the law is amended.

Other problems arise from the lack of administrative capacity of the Registry Agency, due to scarcity of qualified personnel, leading to delays in the registration process. This issue will be resolved once most of the companies in the country are registered.

The positive effects
As a result of the online trade register, doing business in Bulgaria becomes easier. It is faster to start up a company and the register enables online registration and verifications. Also, the new trade register aims to serve as a unified database of all companies in Bulgaria, which is publicly accessible and centralised and makes the registration process much more transparent.

According to the latest statistics from the World Bank’s Doing Business Index of the, in 2007 it took on average 32 days, nine procedures, cost eight per cent of annual income per capita and the minimum required capital amounted to 56 per cent of income per capita to start a business in Bulgaria. That sharply contradicts to the countries that rank on top according to “ease of starting a business” indicator – in Australia and Canada it takes two days and two procedures to start a company, there is no minimum capital required and the costs are below one per cent of the average annual income per capita. After the trade register reform, Bulgaria will improve its position in the global rankings on the ease of doing business. If we use the ranking simulator of the World Bank to assess the impact of the reform, Bulgaria would rank 40th instead of 45th in overall rankings if starting a business takes on average three days. This exercise assumes other countries do not reform.

Challenges
There is still a lot to be done to make doing business in Bulgaria easier.
First of all fees are still high in spite of the improvements. This is partly due to the prices for services of attorneys and lawyers, which are set in Bulgaria. A further step in reforming the process of starting a business in the country will be to eliminate the minimum capital requirement. At present, it takes 5000 leva to start a limited liability company and 50 000 leva to start a stock company. The countries where it is easiest to do business and entrepreneurship is encouraged, there is no minimum capital required to start up a company. Among these are the USA, Great Britain, Canada, Australia, Ireland and Japan. The movement to abolish minimum capital required is widespread in the world. India, Macedonia, Montenegro, have also abolished the requirement, while the required capital in other countries is much less in terms of percentage of national income per capita than in Bulgaria. The top reformer, according to Doing Business Index 2008, is Egypt, which minimised the capital required to start a business 50 times and halved the time and cost of start-up.